PENN Entertainment announced on Thursday that it had authorized a new $750 million share buyback, which comes on the heels of a previous repurchase program of the same amount that the Pennsylvania-based gaming giant announced in February.
The owner of legal sports betting brands theScore Bet and Barstool Sportsbook, PENN is doing this stock repurchase to boost the company's sagging share prices which have plunged 35% since the beginning of the year.
The steady yearlong decline in its stock price — as of 2 p.m. ET Thursday, PENN Entertainment (NASDAQ: PENN) was trading at approximately $33 per share — saw the operator drop from the S&P 500 index in September as investors sold off the stock as part of the overall drop in gaming industry share prices this year.
Taking precaution
The share buyback may also be intended as a defensive maneuver against a possible takeover attempt by one of the larger sports betting sites.
A hint of a prospective takeover bid came in mid-November when Wall Street investment bank, Goldman Sachs, filed a mandatory 13-F disclosure statement which revealed that it had purchased 4.5 million shares of PENN in Q3, roughly equivalent to a 3% stake in the operator.
Gaming industry analysts immediately speculated that Goldman could be acting as a counterparty on behalf of a corporate raider, eager to scoop up an even larger portion of PENN's outstanding share as part of an acquisition attempt.
PENN's new $750 million share buyback comes on top of the leftover $211 million portion from its earlier $750 million stock repurchase program. The company has further indicated that it will first exhaust its leftover capital allocation before proceeding with the new repurchase effort.
"Given our strong financial position and our continued belief that there is a significant mismatch between our stock price and our internal valuation, we purchased an additional 5.35 million shares for $168 million, or an average price of $31.40, during the third quarter," said PENN CEO Jay Snowden during the company’s third-quarter earnings call on November 3.
"[...] Subsequent to the end of the quarter, we repurchased an additional one million shares for $29.1 million at an average price of $28.95 per share."
With a total of $961 million now in its share buyback war chest, PENN could conceivably purchase nearly 30 million shares at the current market price of $33 per share, substantially reducing the outstanding float and likely sending its share prices higher in the first quarter of 2023.
North American dreamers
This has been an important year for PENN Entertainment, which rebranded from Penn National Gaming at the beginning of August. The company has now concluded two major deals in the U.S. and Canadian sports betting markets that have helped turn it into one of the best-known operators in North America.
In mid-August, PENN took the final step in its ambitious expansion plan that saw it exercise its option to purchase the remaining shares of Barstool Sports for an additional $387 million in a deal expected to close in February.
This payment comes on top of PENN's previous $163 million acquisition of a 36% stake in the Barstool in 2020 which brings the total purchase price to $550 million.
Meanwhile, in July, PENN confirmed that it had deployed its in-house proprietary tech stack with theScore Bet, its Ontario-based mobile sportsbook and online casino operator that it took over after acquiring Score Media and Gaming for $2 billion in October 2021.
Barstool transition
This summer, PENN also revealed that it will begin transitioning its in-house proprietary platform to Barstool Sportsbook in Q3 2023 just ahead of the 2023 NFL season. The migration of the operator's retail facilities will be completed early in 2024.
This move became official at the beginning of October when PENN announced the official terms of separation from its previous tech supplier, Kambi, which had helped PENN grow its Barstool Sportsbook to offer legal sports betting in 15 states, including 13 mobile launches and 25 Barstool-branded PENN casinos.
The addition of Barstool Sportsbook gives PENN a solid foothold in most of the major state betting markets in the U.S., where it generally ranks among the Top 5 operators in market share.
In last month's Q3 earnings call, Snowden said that the company will take a considered approach to increasing market share in both the Ontario and U.S. markets.
"We’ll do all of this in a thoughtful way. We’ll be judicious in how much we spend and where we spend. We’re not looking to grow market share if we can’t do it profitably," said Snowden.
